Property Investors – have you claimed all your capital allowances?
Identifying capital allowances can add significantly to cash flow benefits for profitable businesses. Legislation introduced in 2012 changed the process for claiming capital allowances on fixtures that increased compliance pressure on property transactions from April 2012. A further restriction became effective for transactions from April 2014 in that the vendor has to have pooled qualifying expenditure for a purchaser of second hand fixtures to be able to claim the capital allowances at all.
If they have not already done so, property investors should be reviewing the capital allowance attributes of their properties and compliance processes around renovations and improvements, as a matter of priority.
Who can claim and how does the process work?
Any company or business that has purchased property as a fixed asset may be eligible. The capital allowance regime allows for tax relief on certain capital expenditure. There is also an opportunity to make claims for capital allowances in respect of a category of expenditure called 'integral features' of a building. Integral features include electrical systems and cold water systems and have wide application. Claims cannot be made for residential property, though common parts of such properties may qualify.
For properties purchased by a company on or after 1 April 2008 (or 6 April 2008 for an unincorporated business) and which were owned by the seller prior to those dates, the seller was unable to claim capital allowances on certain categories of what are now integral features. If an unconnected purchaser can establish there is qualifying expenditure on such integral features not claimable by any previous owner, however, they will be able to make a claim based on the apportioned purchase price rather than original cost to the seller. Since April 2012 purchasers have been required to obtain documentary evidence of the tax value of any fixtures which the vendor has pooled, in order to claim capital allowances. A further restriction came into force on 1 April 2014 so that, except in very limited circumstances, if the vendor of second hand fixtures has not pooled expenditure qualifying for capital allowances, the purchaser is unable to claim allowances going forward – advice should be sought.
Implications
From April 2012 if fixtures qualifying for capital allowances are not appropriately identified, and from April 2014 if qualifying expenditure is not pooled, there is a risk that all future owners will be unable to claim allowances. Act now to benefit the existing business and enhance property disposal values – this opportunity really should not be overlooked.
We have taken care to ensure the accuracy of this publication, which is based on material in the public domain at the time of issue. However, the publication is written in general terms for information purposes only and in no way constitutes specific advice. You are strongly recommended to seek specific advice before taking any action in relation to the matters referred to in this publication. No responsibility can be taken for any errors contained in the publication or for any loss arising from action taken or refrained from on the basis of this publication or its contents. © Smith & Williamson Holdings Limited 2015
